Thailand native Supap Kirtsaeng, a mathematics student at the University of Southern California, noticed that some of the college textbooks he used and sampled from his local college bookstore were selling at a lower price in Thailand than here in the United States. To him, it was the ideal arbitrage opportunity and allowed him to buy the books in Thailand and sell them in the U.S. It worked so well that it earned him around $1 million. The underlying publishers were Wiley and some other rivals, and the size of his revenue caught their attention.
Unfortunately for the enterprising student, Wiley sued him for copyright infringement and won the case. A judge in Manhattan on the Second U.S. Circuit Court of Appeals ordered Kirtsaeng to pay the company $600,000. The case is still being fought and has moved up the judicial ladder, with the U.S. Supreme Court to decide on the case soon. A 1998 Supreme Court decision has already made it possible for the original copyright owner to profit from the original sale of merchandise. This is now known as the first-sale doctrine and generally applies to U.S.-made products.

First-Sale Doctrine
The unfavorable ruling against Kirtsaeng represents a twist on the first-sale doctrine and was made with the conclusion that the doctrine doesn't apply to goods made overseas. Basically, anything produced outside of the U.S. doesn't fit the doctrine's original purposes. This has huge ramifications for the secondary marketplace.

If the Supreme Court rules against Kirtsaeng and in favor of Wiley, consumers who sell goods on eBay or any secondary marketplace could face copyright infringement charges for any products made overseas. This will lead to huge uncertainty. It is not always certain where goods are made, and products these days contain parts from around the world. It brings up many questions, such as if the final place of assembly counts as the country of origin, or if a certain percent of the raw materials are made overseas, for instance.

Firms including eBay, Costco and secondhand stores are clearly supporting Kirtsaeng and hope the first-sale doctrine is applied to all goods internationally. Other copyrighters that are subject to frequent piracy, including firms that own media rights to recorded music, film and related entertainment, would like to see more stringent restrictions on the sale of their goods in the secondary market. As such, they would like to see Wiley prevail.

Secondhand Marketplaces Paying Attention
If Wiley does win, consumers would have to get approval from the original manufacturer to sell a good online, to a secondhand store or another consumer. If manufacturers don't grant approval, it could grind these marketplaces to a halt. Manufacturers could also choose to be difficult and make the approval overly difficult or slow, which would also adversely impact the market.

On the flip side, going after their own customers could prove challenging. For starters, it would be extremely bad for business. It would also be cumbersome and nearly impossible to track down all potentially illicit activities. Legal fees could pile up, especially since copyrighting a product isn't that difficult, and it is doubtful whether pursuing legal action would be economical in many cases. Going after someone who sold a $10 DVD is hardly worth pursuing. The recorded music industry tried to go after consumers when illegal downloads of music took off on the Internet, but the strategy turned off customers and did little to dent illegal downloading activity.

The Bottom Line
A Supreme Court ruling in favor of Wiley would greatly complicate the buying and selling of used goods on the secondary market. No one is putting odds on which decision will be reached, but it seems logical that the first-sale doctrine should apply to both domestic and foreign items.

Photo Courtesy of cytech

Related Articles
  1. Economics

    The 5 Countries That Produce the Most Carbon Dioxide (CO2)

    Learn about the top five countries, China, the United States, India, Russia and Japan, that are the largest contributors to carbon dioxide emissions.
  2. Economics

    Explaining the Tier 1 Leverage Ratio

    The Tier 1 leverage ratio measures a bank’s core capital against its total assets.
  3. Investing Basics

    What Is Schedule 13G Used For?

    Schedule 13G is an SEC form an investor must file upon taking ownership of 5% or more of a company’s outstanding shares.
  4. Insurance

    Airbnb Insurance: Will It Cover Enough?

    If a paying guest trips over a rug in your home, breaks an ankle and sues for damages, here's how to make sure your coverage protects you.
  5. Insurance

    5 (Possibly) Costly Risks of Being an Airbnb Host

    Guests who get injured or damage your neighbor’s property are just a couple of examples of what can go wrong. Here’s how to protect yourself.
  6. Investing News

    Mexican Energy, Telecom Reforms Please Foreign Investors

    Two years into his first term, Mexican President Enrique Peña Nieto is following through on radical campaign promises he made to Mexican citizens for sweeping multi-industry reform.
  7. Investing

    Top Cities Where Airbnb Is Legal Or Illegal

    Thinking of subletting your apartment on Airbnb? Make sure that you meet your city's regulations first.
  8. Term

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
  9. Credit & Loans

    Co-signing a Loan? Make Sure You Know The Risks

    Contractually, co-signers are just as responsible for the loan as the person actually borrowing the money. Be careful not to put yourself at risk.
  10. Investing

    Trends In Copyright Litigation

    The Internet has resulted in an explosion in content. An increasing number of copyright trolls are monetizing such content through litigious practices.
  1. What happens to a 529A account when the beneficiary dies?

    According to the Achieving a Better Life Experience Act of 2014 (ABLE Act), when the designated beneficiary of a 529A account ... Read Full Answer >>
  2. Can you have more than one 529A account?

    According to the Achieving a Better Life Experience Act of 2014 (ABLE Act), a disabled person can generally set up only one ... Read Full Answer >>
  3. How often do mutual funds report their holdings?

    The Securities and Exchange Commission (SEC) requires mutual funds to report complete lists of their holdings on a quarterly ... Read Full Answer >>
  4. How do I find a good personal bankruptcy lawyer?

    While it is not necessary to hire an attorney to file bankruptcy, the rules that govern bankruptcy can be extremely complex, ... Read Full Answer >>
  5. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ... Read Full Answer >>
  6. How does FINRA differ from the SEC?

    With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!